- Small Business Defaults Rise, Borrowing Drops: "What Scares Us Is The Rise In Delinquencies"
Yesterday, we pointed out something disturbing when we looked at the latest NACM Credit Manager Index report: over the past year it had declined steadily, hitting the lowest print since 2009, or as the National Asscoiation of Credit Managers’ economist Chris Kuehl said “Overall, it was fun while it lasted – the trends had been up and now they aren’t” adding that “the best that can be said about the decline is that it was bad and hasn’t gotten much worse…. The sales collapse is consistent with what has been appearing in the Purchasing Managers’ Index and other statistics, so it is unlikely to be an anomaly, not good timing as far as the retail community is concerned.”
Today, we got a validating, and equally concerning, perspective on how small businesses are doing, courtesy of the latest Thomson Reuters/PayNet Small Business Lending Index, which fell to 121.5 in July, the lowest level since January and down from an upwardly revised 139.2 in June.
But while the headline decline was mildly troubling, the details within the report were worse: according to PayNet, borrowing by U.S. small businesses sank in July, with more firms late on repaying existing loans, trends which according to Reuters “point to softer economic growth ahead.”
More troubling is that companies are increasingly struggling to pay back existing debts. Loans more than 30 days past due rose in July to 1.63%, the fourth straight monthly increase and the highest delinquency rate since December 2012, separate data from PayNet showed.
“The thing that scares us is the rise in delinquencies,” said Bill Phelan, PayNet’s president. “Every one of these months where investment is down and delinquencies are up is one step more toward contraction.”
Here is why the PayNet data matters: the index typically corresponds to U.S. gross domestic product growth one or two quarters ahead. With the U.S. economy growing a paltry 1.1% in Q2, many economists have staked their reputation on the belief that growth will rebound in the third quarter. According to this data, not only will there be no rebound, but growth will deteriorate further.
Small business borrowing is a key barometer of growth because small companies tend to do much of the hiring that drives economic gains.
Just as importantly, the figures come as the Federal Reserve mulls the timing of its next rate hike, which may take place in just three weeks. With demand for debt sliding, and delinquencies steadily on the rise, the one thing that will happen if the Fed raises rates again, is accelerate these already adverse trends, leading to even less borrowing, and even more delinquencies and defaults.
PayNet collects real-time loan information such as originations and delinquencies from more than 325 leading U.S. lenders.
- The Italian Referendum Could Result In The Death Of The Euro
Submitted by John Mauldin via MauldinEconomics.com,
An important election is coming up, and I’m not talking about the US presidential election. The upcoming referendum in Italy this fall will have a major macroeconomic impact on the world. But hardly anyone outside of Italy is paying much attention to it – yet.
I’ve been saying for some time in interviews around the country that the referendum in Italy could have even more of an impact than the Brexit vote did in the UK. And like the Brexit vote, it is rife with emotion and political turmoil, making the outcome too close to call.
The current prime minister, Matteo Renzi, has basically bet his career on this referendum, which would allow him to enact much-needed reforms. In fact, they’re the same reforms that I have written about in my letters over the past five years and that I talked about in my previous two books.
Italy has about as sclerotic a governmental process as any country in Europe. And that is saying something. There is no end to corruption and crony politics. Each faction wants to keep the status quo and keep its perks but wants everybody else to give theirs up. If you’re a voter in Italy, your frustration is understandable.
This vote in Italy needs to go on your economic radar screen. If the “no” vote wins, Renzi has promised to resign. This would throw Italy into a political crisis. Then there would be a real potential to elect parties that would call for a vote on whether to stay in the European Union. And at this point, it is not clear what the Italians would decide to do.
Know this: The European Monetary Union does not work very well, if at all, without Italy. A “no” vote would be the death knell of the euro.
Nick Andrews, who writes for my friends at Gavekal, gives an excellent summary of the situation in Italy. And, it is worth every bit of your attention.
Renzi’s Great Gamble
By Nick Andrews and Stefano Capacci
Prime ministers come and go in Italy—four since the financial crisis—but precious little seems to change. The latest incumbent, Matteo Renzi, has pursued structural reform more energetically than his predecessors. But for all the progress he has made, he might as well have been wading through molasses. Now, in a bid to secure a popular mandate for his restructuring program, Renzi has bet his premiership on a referendum over badly-needed constitutional reforms. It is a high stakes gamble. If Renzi wins the vote, which is due in either October or November, his proposed measures will streamline Italy’s legislative process, breaking the parliamentary gridlock which has crippled successive governments, and opening the way to far-reaching economic reforms. If he loses, Renzi has promised to step down—a pledge that has turned the referendum into a popular vote of confidence in the unelected prime minister, his Europhile policies, and—by extension—Italy’s membership of the eurozone itself. As a result, a “no” vote in October will not just precipitate the fall of Renzi’s government; it could throw Italy’s long-term membership of the eurozone into doubt, plunging the single currency area once again into crisis.
Policy no man’s land
Italy’s fundamental problem is that it’s stuck in a policy no man’s land. Its old economic model, in place for much of the last three decades of the 20th century, relied on a combination of currency devaluation to maintain international competitiveness together with fiscal spending to support the poorer regions of the country’s south.
Signing up to the euro put an end to all that, preventing devaluations and prohibiting budget deficits at 10% of gross domestic product. However, the design of Italy’s bicameral parliamentary system, in which the upper and lower house—the Senate and the Chamber of Deputies—wield equal legislative power, made it almost impossible for any government to push through the structural reforms necessary for Italy to compete and prosper within the eurozone. The result has not just been depressed growth and relative impoverishment, but an outright decline in living standards as Italy’s real GDP per capita has slumped to a 20-year low.
Such a below-par economic performance has led to a build-up of bad assets on the balance sheets of Italy’s banks, where 18% of all loans are now classed as non-performing. In turn, this bad loan overhang has eroded the ability of the banking sector to extend new credit to the thousands of small businesses which are the engine of Italy’s economy and which normally power employment growth. The result is stagnation.
To stand any chance of escaping this low growth trap, Italy needs to enact wholesale structural reforms to enhance its competitiveness relative to its eurozone neighbors. Notably, it needs to make the labor market more flexible to encourage job creation, it needs to lower the barriers to entry that protect much of the country’s service sector, it needs to overhaul a judicial system so sclerotic that bankruptcy proceedings can last 10 years or more, and it needs to restructure its fragmented and dysfunctional banking system.
The prescription might be clear, but Italy’s political system makes enacting reform all but impossible. Renzi has already tried to overhaul Italy’s labor market by attempting to dismantle the generous protections that make it difficult and expensive for companies to dismiss staff, and which therefore encourage businesses to hire only temporary workers, heightening economic insecurity among the young.
But Renzi’s attempt ran into bruising opposition from Italy’s powerful and well-subscribed trade unions. The results were a watered-down reform package that entitles existing permanent staff to a near-guarantee of lifetime employment, and a severe dent in Renzi’s popularity from which he is yet to recover. It’s a familiar story in Italy. Entrenched interests—whether represented by local and regional political leaders, unions, protected professions, or established private sector companies—exert enormous influence over the political process. All profit from the status quo, which promises they will continue to benefit from special protections and payouts. And because of the equal balance of power in Italy’s parliament, which means the Senate can block government legislation indefinitely, the consequence is political—and economic—stagnation.
Bloated and wasteful
Renzi’s referendum aims to change that. The prime minister is seeking popular approval for constitutional reforms that promise to cut the size of the upper house from 315 to 100 senators. Under his proposals, senators will no longer be directly elected, but will instead be chosen by regional councils, nominated by the mayors of big cities, or—in the case of five—be appointed by the Italian president. The reform will cut the costs of the notoriously bloated and wasteful upper house, where senators have traditionally enjoyed lavish expenses and generous pensions. Most importantly, it will downgrade the political power of the Senate so that it will no longer be able to obstruct government legislation entirely, but only to propose amendments that will be adopted at the discretion of the lower house (although the Senate will retain a say on constitutional matters, including the ratification of European Union Treaties). The objective is to increase the executive power of the government, and to tackle entrenched interests with additional measures that allow for new laws to facilitate popular referendums and to promote citizen participation in the political process.
Unlikely alliance
However, powerful forces are arrayed against Renzi, and a “Yes” vote is far from assured. The proposed reforms have attracted opposition from establishment voices who benefit from the current arrangements. They have also drawn fire from constitutional lawyers and anti-establishment parties, including the populist 5-Star Movement, which argues the 50% simple majority needed to win the referendum is too low for constitutional changes that promise a concentration of political power unprecedented since the formation of the Italian republic in 1946.
Perhaps more importantly, Renzi’s pledge to resign in the event of a “No” victory has raised the possibility of a protest vote against the prime minister himself—the third unelected head of government in succession—from a broad cohort of the electorate, which is thoroughly disillusioned with Italian politics. Increasingly disgruntled, these voters are sick of the corruption and self-interest of politicians, and fed up with painfully austere policies that they believe to be dictated from Brussels and Berlin, and which they hold responsible for Italy’s poor economic performance.
The chances of a “Yes” vote in the referendum have not been improved by the slump in Renzi’s personal popularity following last year’s attempt to reform the labor market, and a series of small bank restructurings that saw retail savers “bailed-in”—forced to take losses—under new European Union banking regulations. From 40% after Renzi entered office two years ago with optimistic promises of reform, the approval rating of the prime minister’s PD party has fallen to little better than 30% today, much the same as that of the opposition 5-Star Movement. As a result, with two months to go the referendum is too close to call. Opinion polls indicate the “Yes” and “No” camps are running roughly equal, with a large proportion of voters still undecided.
If Renzi loses the referendum, not only will Italy remain in policy limbo, but it is highly likely his subsequent resignation will trigger a parliamentary election. Under new election laws passed last year, if a party fails to win 40% in the first round of voting, the top two parties go through to a second round. The latest opinion polls put Renzi’s governing PD party on 31% and the 5-Star Movement on 29%, with the next two largest parties—Silvio Berlusconi’s Forza Italia and the anti-establishment Northern League—level pegging on around 13%.
In recent years, Renzi’s PD government has represented the best hope for structural reform and economic modernization. But even if the PD party were to win a post-referendum election, there is a risk that, following Renzi’s resignation, the left wing of the party would wrest back control from the reformist center-right faction, damping hopes for further restructuring. Such a swing to the left would hardly be unique to Italy. In the UK, the militant left has captured the leadership of the main opposition Labour Party. In Spain, Podemos has split the left wing vote, and in France the ruling Socialists have come under pressure in the polls from the radical and Euroskeptic Left Party led by Jean-Luc Mélenchon.
At the moment, an election victory for the 5-Star Movement, which identifies as neither left nor right, appears at least as probable as a second round win for the PD. The Movement has already scored significant victories in mayoral elections in Rome and Turin and enjoys increasing support across the country. Its broad stance is anti-establishment and in favor of direct participatory democracy rather than representative democracy, which it regards—with some justification in Italy—as an invitation to corruption. Beyond that, however, its platform is so vague that it is hard to pinpoint any concrete policies, except its call for a referendum on Italy’s membership of Europe’s single currency.
Leadership vacuum
Perhaps the biggest problem for 5-Star, however, is that it has no clear leader. Its founder and leading voice, Beppe Grillo, was found guilty of involuntary manslaughter in 1980 following a fatal road traffic accident, and so cannot run for public office under Movement rules barring candidates with criminal records. Without Grillo, the parliamentary party would be leaderless, meaning 5-Star has no obvious prime ministerial candidate even should it secure a majority in the election.
All this means that the possibility of a “No” vote in Italy’s constitutional referendum come October or November is the biggest clear and present danger to the euro’s survival. Both 5-Star and the Northern League are promising a plebiscite on euro membership should they come to power in a post-referendum election. That does not mean a vote on Italy’s eurozone membership would lead directly to its exit—many likely “No” voters in this year’s constitutional referendum favor continued euro membership. However, a “No” vote come October would effectively be a vote against the structural reforms needed to ensure Italy’s economic growth and prosperity within the eurozone.
In other words, in the event of a “No” vote in October, the only economic choice for Italy would be between continued stagnation, or a return to the old economic model of successive devaluations. The latter course would naturally mean exiting the eurozone anyway. But even if Italy were to take that path, it would hardly be a less painful way to restore the economy to health. Whether inside or outside the single currency, Italy still needs structural reform to ensure future growth. The only potential benefit to leaving the eurozone would be that deep devaluation of a reconstituted lira could help to ease some of the transitional pain (although it is probable the palliative effect would be more than offset by the additional economic and financial damage wreaked by an exit).
Europe in microcosm
Clearly investors should be concerned. Italy is the third biggest economy in the monetary union and one of its core members. Its departure would surely hasten the break-up of the whole euro project. What’s more, the political and economic tensions within Italy ahead of October’s referendum mirror those at work across the eurozone as a whole. In Italy, the wealthy north makes up the industrial heartland which drives the economy, while the south is underdeveloped and poor. There is little enthusiasm for structural reforms, and throughout the country, populist movements—which promise to tear down the self-serving political establishment—are rapidly gaining ground.
Italy is the wider eurozone in microcosm. In the EU as a whole, progress towards creating the political and economic institutions that could ensure the success of the single currency project have been comprehensively obstructed by narrow—but deeply entrenched—national interests. This failure to advance, and the economic hardships and sense of disempowerment that have resulted, has fueled the rise of populist political parties from Greece to Finland—parties that are challenging an increasingly distrusted political elite and questioning not just the status quo, but the whole European project. If Renzi wins come October, the eurozone has fresh hope. But if he fails, Italy fails—and very likely the eurozone fails too.
Each week in Outside the Box, John Mauldin highlights a thoughtful, provocative essay from a fellow analyst or economic expert. Some will inspire you. Some will make you uncomfortable. All will challenge you to think outside the box.
- YouTube Strips 'Politically Incorrect' Videos Of Revenue: "Controversial Subjects Like War, Tragedy"
Submitted by Paul Joseph Watson via SHTFPlan.com,
This article was written by Paul Joseph Watson and originally published at Infowars.com.
SHTFPlan’s Mac Slavo Comment: This is chilling. More subtle than other forms of censorship, this Google/YouTube policy is stripping away the honest debate about some of the most important and controversial topics that are going on in our world. How can people not be allowed to discuss – or especially to criticize – the failed and flawed policies that are dragging us to war?
How can it be OK for Secretaries of State and Presidents to fund ISIS and cut deals with human right violators, but not OK for YouTubers to criticize it? By cutting advertising, the mega-platform hopes that no one will dare to discuss these things, and make no mistake, it will be selectively enforced. While individuals are free to go elsewhere, this platform, like a handful of others, has dominated that vast majority of web traffic, and drive the audiences that one would hope to reach with a video. If critics and dissidents are exiled and shunned from here, where will they be free to redress their grievances and call out hypocrisy and lies?
YouTube Declares War on Politically Incorrect Opinions
by Paul Joseph Watson
A new “advertiser friendly” policy introduced by YouTube will punish those who express politically incorrect opinions or dare to offend viewers by de-monetizing their content.
The new rules have sparked an outcry from the YouTube community because they are so incredibly restrictive.
YouTube will now retain the right to demonetize any videos that contain, “Controversial or sensitive subjects and events, including subjects related to war, political conflicts, natural disasters and tragedies, even if graphic imagery is not shown.”
“Inappropriate language, including harassment, profanity and vulgar language,” is also being demonetized.
This is the end game of allowing all your content to be swallowed up by social media ghettos. #YouTubeIsOverParty pic.twitter.com/ckSNa8YUmj
— Paul Joseph Watson (@PrisonPlanet) September 1, 2016
YouTube’s new policy will completely disincentivize YouTubers from discussing politically incorrect topics or expressing controversial opinions because they know they will be punished for doing so. Many YouTubers make a living off their channel and will therefore be walking on eggshells to avoid the company’s stringent new rules.
The new policy bears some hallmarks of the Communist Chinese government’s “social credit score system,” whereby Internet users are punished by private companies and their peers for expressing unpopular views on social media.
The move is primarily designed to scare away YouTubers from making anti-establishment political content, but prominent YouTubers are already reporting that videos on everything from acne solutions to tips on combating depression are being demonetized because they are not “advertiser friendly”.
“The channels that self-identify as vulnerable by these advertising guidelines seem to be news channels covering sensitive real-world topics,”reports Kotaku.
Prominent YouTuber Philip DeFranco responded to the controversy by vowing, “I’m not going to censor myself,” despite the fact that dozens of his videos have already been demonetized.
Google-owned YouTube is of course a private company and can enforce any rules it likes, but with the advent of such corporations becoming so large (more powerful than countries in some cases), in addition to them insisting on being treated as a public utility, the move is a massive stab in the back for the content creators who helped build the platform in the first place.
As Matt Drudge warned about when he appeared on the Alex Jones Show nearly a year ago, creators allowing their content to be swallowed up by social media ghettos was always going to lead to this outcome.
“I don’t know why they’ve been successful in pushing everybody into these little ghettos, these Facebooks, these Tweets, these Instagrams,” Drudge told Jones. “This is ghetto, this is corporate; they’re taking your energy and you’re getting nothing in return.”
The video below sums up the impact the new rules will have on YouTube unless they are reversed.
This article was written by Paul Joseph Watson and originally published at Infowars.com.
- Police Leader Slams NFL's "Downward Spiral" After Kaepernick's "Pig Cop Socks" Stunt
Just when you thought the Kaepernick debacle was out of the news cycle, the 49ers quarterback decided to wear socks to practice depicting cartoon pigs dressed as cops as he continues his protest of police brutality against people of color. This move – which had gone unnoticed until today – appears to have been the final straw for the executive director of one of the largest police organizations in the country.
Bill Johnson, executive director of the National Association of Police Organizations (a coalition of police unions and associations from across the country), representing more than 240,000 active law enforcement officers, was enraged. As USA Today reports…
“It’s just ridiculous that the same league that prohibits the Dallas (Cowboys) football club from honoring the slain officers in their community with their uniforms stands silent when Kaepernick is dishonoring police officers with what he’s wearing on the field,"
(The Cowboys’ plan to use a helmet decal as a tribute to the five police officers killed in July's sniper attack was denied by the NFL, according to a published report.)
“I think the league is in a downward spiral regarding their obligations to the public under (Commissioner) Roger Goodell," added Johnson, "and this is just another example of that."
The NFL chose not to provide an official response until the league office had consulted the 49ers, who play the San Diego Chargers on Thursday night in their final preseason game.
Kaepernick took to Instagram to try and provide an explanation…
"I wore those socks, in the past, because the rogue cops that are allowed to hold positions in police departments, not only put the community in danger, but also put the cops that have the right intentions in danger by creating an environment of tension and mistrust. I have two uncles and friends who are police officers and work to protect and serve ALL people. So before those socks, which were worn before I took my public stance, are used to distract from the real issues, I wanted to address this immediately."
But Johnson was having none of it…
“It doesn’t seem like he’s thought through or bothered to educate himself about the way (law enforcement officers) are out there trying to do a very difficult job, and the vast majority of the time get the job done right," Johnson said.
And is aiming his ire at The NFL…
“I expect more from the NFL," Johnson said. “The NFL has exhibited — it’s not just tone deafness, it seems to be an act of dislike of police, frankly."
e can't help but wonder what Kaepernick's teammates think of all this…
Let's just hope for his sake that his offensive lineman share his perspective or that opener against the Rams may be a long night for the controversial QB (as might tonight's Chargers game).
Of course there is one person who is thankful for what Colin Kaepernick is doing… Ryan Lochte.
- Magical Thinking
Submitted by Ben Hunt of Epsilon Theory
* * *
Duane Hall: Can I confess something? I tell you this as an artist, I think you’ll understand. Sometimes when I’m driving … on the road at night … I see two headlights coming toward me. Fast. I have this sudden impulse to turn the wheel quickly, head-on into the oncoming car. I can anticipate the explosion. The sound of shattering glass. The … flames rising out of the flowing gasoline.
Alvy Singer: Right. Well, I have to — I have to go now, Duane, because I … I’m due back on planet Earth.“Annie Hall” (1977)
* * *
One of my all-time top-ten movie scenes. Of course, Duane ends up driving Alvy and Annie back to the airport that night. No one does crazy better than Christopher Walken. Except maybe the Fed’s #2, Stanley Fischer. We’re all just passengers in the backseat of the Fed-driven car.
* * *
Alvy Singer: This guy goes to a psychiatrist and says, “Doc, my brother’s crazy; he thinks he’s a chicken.” And the doctor says, “Well, why don’t you turn him in?” The guy says, “I would, but I need the eggs.” Well, I guess that’s pretty much how I feel about relationships; y’know, they’re totally irrational, and crazy, and absurd … but, I guess we keep going through it because most of us … need the eggs.
“Annie Hall” (1977)
* * *
We’re all passengers in the backseat of the Fed-driven car, and we all suspect that our drivers might be high-functioning lunatics, and we’re all terrified about what they might do next.
But we need the eggs.
* * *
“What are the stars?” said O’Brien indifferently. “They are bits of fire a few kilometres away. We could reach them if we wanted to. Or we could blot them out. The earth is the centre of the universe. The sun and the stars go round it.”
“For certain purposes, of course, that is not true. When we navigate the ocean, or when we predict an eclipse, we often find it convenient to assume that the earth goes round the sun and that the stars are millions upon millions of kilometres away. But what of it? Do you suppose it is beyond us to produce a dual system of astronomy? The stars can be near or distant, according as we need them. Do you suppose our mathematicians are unequal to that? Have you forgotten doublethink?”
Winston shrank back upon the bed. Whatever he said, the swift answer crushed him like a bludgeon. And yet he knew, he knew, that he was in the right. The belief that nothing exists outside your own mind — surely there must be some way of demonstrating that it was false? Had it not been exposed long ago as a fallacy? There was even a name for it, which he had forgotten. A faint smile twitched the corners of O’Brien’s mouth as he looked down at him.
“I told you, Winston,” he said, ‘”that metaphysics is not your strong point. The word you are trying to think of is solipsism. But you are mistaken. This is not solipsism. Collective solipsism, if you like. But that is a different thing: in fact, the opposite thing.”
? George Orwell, “1984” (1949)
* * *
As O’Brien patiently explains to Winston between torture sessions, or what we would call today “FOMC meetings”, Collective Solipsism is the voluntary abdication of empirical and independent thought. But it’s not ordinary solipsism — a pathological egocentrism where reality is entirely defined by one’s own thoughts. Instead, Collective Solipsism annihilates one’s own thoughts and replaces them with state-sponsored thoughts. Your reality is just as fake. But you’re living someone else’s fantasy.
* * *
Grief turns out to be a place none of us know until we reach it. … We might expect that we will be prostrate, inconsolable, crazy with loss. We do not expect to be literally crazy, cool customers who believe that their husband is about to return and need his shoes.
In the version of grief we imagine, the model will be “healing.” A certain forward movement will prevail. The worst days will be the earliest days. We imagine that the moment to most severely test us will be the funeral, after which this hypothetical healing will take place. … We have no way of knowing that this will not be the issue.
There was a level on which I believed that what had happened was reversible.
? Joan Didion, “The Year of Magical Thinking” (2005)
* * *
The best book I’ve ever read on the emotion of grief. Central bankers today are grieving the death of the so-called Great Moderation, and they are expressing their grief in the same way that Didion expressed hers — through magical thinking, through the pathological belief that if only the right words are said and the right thoughts are thought, then the dearly departed might walk through the front door and ask for his shoes.
* * *
Mr. Hilsenrath: What kind of compromise would it take to get the FOMC to move in September? I mean, so the tradition is there’s some kind of — like you say, some kind of agreement. What would it take to get them there? Mr. Bullard: Well, I have no idea, so — and it’s really — it’s really the chair’s job to fashion that. But I will say that — I’ll talk historically about the FOMC, the kinds of things that the FOMC would do. You would trade off. You would say, OK, we could hike today, but then we’ll not plan to do anything in the future. That would be one way to — one way to go about a consensus. So that often happens on the FOMC. Or vice versa. If you read the Greenspan-era transcripts, he’ll do things like, OK, we won’t go today, but we’ll kind of hint that we’re pretty sure we’re going to go next time. Mr. Hilsenrath: Right. Mr. Bullard: And so you get this inter-tempo kind of trade-off, and that often — that often is enough to get people to sign up. Mr. Hilsenrath: So, hike today and then delay. Mr. Bullard: Yeah. (Laughs.) Mr. Hilsenrath: Or, no hike today and then no more delay. Mr. Bullard: Yeah, yeah. Mr. Hilsenrath: Something like that. Mr. Bullard: Yeah, those kinds of trade-offs are, historically speaking — I’m not saying I know what Janet’s doing, because I don’t. But, historically speaking, those are the kinds of things that the FOMC has done. Mr. Hilsenrath: I came up with my catchphrase for the — for the month. (Laughter.) Mr. Bullard: Those are great. That’s worthy of a T-shirt. (Laughs, laughter.) You could have one on the front and one on the back. Ms. Torry: Or a headline. Mr. Hilsenrath: Well, that’s the St. Louis framework now, right? Mr. Bullard: Yeah. Mr. Hilsenrath: Hike today and then delay. Mr. Bullard: Yeah. That’s what it would be, yeah. Mr. Hilsenrath: But if you decide to use that, maybe you can credit — you know, include a little footnote to the Wall Street Journal. Mr. Bullard: OK. (Laughs.) ? Wall Street Journal, “Transcript: St. Louis Fed’s James Bullard’s Interview from Jackson Hole, Wyo.” (August 27, 2016) * * *
Reading this transcript made me throw up in my mouth a little bit. And Bullard is the best of the lot. At least he’s honest about the intellectual poverty about the whole FOMC interest rate-setting exercise. They’re just making it up as they go along, a hallmark of magical thinking.
* * *
In point of fact magicians appear to have often developed into chiefs and kings.
? James George Frazer, “The Golden Bough” (1890)
* * *
Frazer’s book on the history and anthropological foundations of magic was a revelation to me when I first read it, as it was to as disparate a group of writers and poets as Yeats, TS Elliot, Freud, Hemingway, Joyce, and … Jim Morrison.
* * *
Courtier T.L. — Amid all the people starving, missionaries and nurses clamoring, students rioting, and police cracking heads, His Serene Majesty went to Eritrea, where he was received by his grandson, Fleet Commander Eskinder Desta, with whom he intended to make an official cruise on the flagship Ethiopia. They could only manage to start one engine, however, and the cruise had to be called off. His Highness then moved to the French ship Protet, where he was received on board by Hiele, the well-known admiral from Marseille. The next day, in the port of Massawa, His Most Ineffable Highness raised himself for the occasion to the rank of Grand Admiral of the Imperial Fleet, and made seven cadets officers, thereby increasing our naval power. Also he summoned the wretched notables from the north who had been accused by the missionaries and nurses of speculation and stealing from the starving, and he conferred high distinctions on them to prove that they were innocent and to curb the foreign gossip and slander.
? Ryszard Kapuscinski, “The Emperor” (1978)
* * *
f you can only read one book on the end of an ancien regime and the magical thinking that ALWAYS takes place in its wake, this is it. Kapuscinski chronicles the final years of Haile Selassie’s reign in Ethiopia from the inside out, interviewing dozens of courtiers to paint a first-hand portrait of an entire society lost in the fantasy world of Collective Solipsism.
Selassie and his Inner Party maintained the fantasy for years after it lost all connection with reality, so that a mighty fleet consisted of a single ship with a malfunctioning engine, promotions and medals were conflated with real-world power and influence, and bad people and bad ideas were constantly lauded and rewarded to keep hard questions from being asked.
Spoiler alert: it doesn’t end well for Selassie or for Ethiopia. In the words of another famous solipsist, Louis XIV, “après moi, le deluge.” After Selassie came The Dergue. Think Pol Pot in committee form.
The last years of Selassie’s rule are more than a parable for our times … they ARE our times.
Magical thinking is a term of art in both clinical psychology and cultural anthropology, and it refers to the common belief among both children and “primitive” societies (yes, intentional quotation marks there to show my arched eyebrow at the word) that thinking the right thoughts or saying the right words can control the invisible forces that shape our world.
For example, as Jean Piaget (the father of developmental psychology) noted, children from the ages of 2 to 7 tend to have very little conception of real-world causality. Tell your four-year-old son that the family dog has died, and he is likely to a) blame himself for something he did or didn’t do for “causing” the death, and b) believe that there is some combination of proper words and proper thoughts and proper actions that can make the dog come back to life. That’s magical thinking. It’s a profoundly ego-centric conception of the world, and if you’re a parent you know exactly what Piaget is talking about. Every four-year-old child is an egomaniac, in the clinical, non-judgmental sense of the word.
It’s the same thing with what cultural anthropologist Claude Levi-Strauss called “The Savage Mind” in his groundbreaking 1962 book. Societies without a causal explanation for, say, the weather will always construct some sort of combination of words and thoughts and actions to be performed by privileged caste members like priests or kings, through which the entire society convinces itself that humans exercise some sort of control over these incredibly powerful real-world forces and that they aren’t just buffeted this way and that by the inexorable might of a big bad world that really couldn’t care less about them. In fact, that’s the literal origin of the word “inexorable”, from the Latin in (not), ex (away), orare (to pray) — something that cannot be prayed away.
In early days of any human society, this sort of magic usually emphasizes some form of sympathetic or like-for-like object … for example, you might rub a banana-shaped crocodile tooth against a banana plant to make it bear fruit (I’m not making this up). Over time, however, the spellcasting caste and society at large convince themselves that you don’t really need actual crocodile teeth, but you can instead invoke the power of a crocodile tooth by calling it by its secret name. Maybe you need to write down that secret name using the secret language of the priests in order to make the spell work, but you definitely don’t need to go out and hunt down a real-world crocodile. It’s at this point that hunter/soldier-kings are replaced by academic/priest-kings … the pen is truly mightier than the sword, or at least writing “crocodile” carries a longer life expectancy than hunting crocodiles. Over still more time, the secret names and the secret language of the priest-kings become a vast edifice of magical thinking, an edifice that provides great comfort and stability to the entire society. Because there is nothing more important to societal stability than the belief that nature is under control. That the invisible forces of nature can, in fact, be prayed away.
Until they can’t. Until all the banana plants die because of some rare nematode infestation in the roots, and all the secret words and secret languages and even the “old magic” of the actual crocodile teeth are useless. They were useless all along, of course, as the banana plants would have borne fruit for the past 50 years with or without the spells, but hey … until this year there was a 98% correlation between the spells and a healthy banana crop! And my VAR was really quite negligible!
Okay, Ben, we see what you’ve done here. Yes, yes … quite droll, really … you’ve found a clever metaphor for railing against our central banker ruling class. Again. Thanks for the diversion, but now we need to get back to planet Earth. Important work to be done, and all that. Love your quotes, by the way.
Wait! This is not a metaphor. This is not an anthropological parable for our times. This IS our times. Want to see what a magic spell looks like? Here you go:
This is the Gaussian Copula spell. It’s what you write down to make sure that your AAA-rated slice of a massive bunch of mortgages pays you 6% a year with only an infinitesimal risk of default. It’s not a metaphor for a spell. It is an actual magic spell, exactly the same in form and function as the talismanic scripts written on, say, Egyptian funerary urns in 1000 BC to make sure that your body and soul get to the afterlife with only an infinitesimal risk of default.
Secret language no one can read or understand? Check. Not really comprehensible even by most magicians? Check. Administered by a privileged caste with appropriate pomp and ceremony? Check. Reflective of an innate human desire to control invisible forces that are, in fact, uncontrollable and inexorable, like death and business cycles? Check. Highly effective in motivating human behavior and supporting status quo political institutions? Check. And mate.
The Gaussian Copula spell wishes away the possibility of a nationwide decline in U.S. home prices (if you haven’t already, please read Felix Salmon’s 2009 Wired magazine article on the Gaussian Copula — “The Formula That Broke Wall Street” — my all-time favorite piece of financial market journalism). The magical thinking embedded in this spell is that a nationwide decline in U.S. home prices is not just unlikely, it is — literally — unthinkable. It is an incantation that generated enormous societal stability and wealth, creating out of whole cloth a belief that a $10 trillion (yes, that’s trillion with a T) asset class in residential mortgage-backed securities (RMBS) was a solid thing, a triumph of Science (why, just look at all those Greek letters and the mathematical stuff!), an example of man’s mastery over the invisible vagaries of nature.
And then we had a nationwide decline in U.S. home prices. Which broke our world.
Here’s another spell:
This is the Taylor Rule spell. It’s what you write down to make sure that the inflation rate in your economy goes up or down the way you want it to go up or down. There are lots of other spells that go along with the Taylor Rule spell for “controlling” inflation, but it’s the main one, I’d say. This is the spell that has created a $12 trillion asset class in negative yielding sovereign debt. Because, you know, the lower interest rates go, the more you’re going to borrow and spend, and the higher inflation goes. Right? Right?
If the Gaussian Copula is like a funerary spell, trying to assure investors that they will get to investor heaven like dead Egyptian Pharaohs were assured of getting to dead Egyptian Pharaoh heaven, the Taylor Rule is like a weather spell. When I read this from James Frazer’s The Golden Bough:
So in Scotland witches used to raise the wind by dipping a rag in water and beating it thrice on a stone, saying:
I knok this rag upone this stane
To raise the wind in the divellis name,
It sall not lye till I please againe.I can’t help but think of Stanley Fischer, vice-warlock of the Fed coven, saying in Jackson Hole that we need thrice interest rate raises (one last December, two more this year) to quell the inflationary winds. Or raise them. Or whatever sort of weather that Fischer is trying to manufacture. It’s really hard to tell.
But here’s the kicker. When a spell doesn’t work, no one in the magically thinking society believes it’s because spell-casting itself doesn’t work. It means that the spell wasn’t performed properly. Either the priest-kings said the words wrong or they didn’t think the right thoughts or there’s some other invisible force that we need to propitiate first. So what always happens, and I mean “always” in the sense of This. Is. Human. Nature. and has been happening in a rhyming sense for tens of thousands of years across every human society that ever lived, is this:
In phase 1, the priest-kings try harder. They seek out purer ingredients for their spells. They speak more loudly, more convincingly, more stridently. If two crocodile teeth were used in the past, now they use four. Or eight. It’s not just “more”, it’s “MOAR!”. Often there’s an internal purge near the end of phase 1.
In phase 2, the priest-kings regroup and tweak the spell. Maybe instead of “targeting” (another word for “praying for”) a 2% inflation rate, we need to “target” a 4% inflation rate. Maybe we should change the magic word “inflation” to “nominal GDP growth” and see if that works any better. Sure, why not? This tweaking process has happened, it is happening now, and it will happen all the way to the bitter end. What will never happen is that the priest-kings quit. There’s always another tweak, always another word choice, always another order in which the words can be said.
In phase 3 — and this is where we are now in the historical process, somewhere near the end of phase 2 and the beginning of phase 3 — the priest-kings are challenged by a rogue priest in their midst (rare) or an alt-priest coming out of nowhere (common). By “nowhere” I mean that the alt-priest is an Other, whether that’s a foreign religion or a foreign geography or a foreign (i.e., non-priestly) caste. The alt-priest isn’t about tweaking the spell or casting it louder. He’s about doing an entirely different spell, and he’s about accusing the incumbent priests of incompetence or worse. The alt-priest is always a populist, and populism comes easy when the incumbent spells have been failing … and failing … and failing.So what happens? It depends on reality. It depends on whether the banana plants get better on their own or if they die. If they get better on their own (and this happens more often than you might think), then the incumbent priest-kings remain. If the banana plants give up the ghost, then the incumbents are swept away. For future reference, this is what dead banana plants look like.
Interestingly — and this was Frazer’s big point in The Golden Bough — even if the incumbent mode of magical thinking survives, it’s necessary for societal stability to perform a public human sacrifice of the primary incumbent priest-king. The king is dead. Long live the king. Fortunately for all involved, human sacrifice today is a lot less literal than it was during, I dunno, the heyday of the Etruscans. A little public shaming, a tearful interview with Anderson Cooper, a quiet hermitage in the form of a deanship at a small New England college … yeah, that should do the trick.
The way this all plays out also depends on how deeply the incumbent priest-kings retreat into their fantasy world of tweaking spells and magical thinking, and that’s where I’m most concerned. The fact is that the global economy — particularly the U.S. economy and the Chinese economy — is more robust than the alt-priests tend to let on. Amazingly enough, the U.S. can still grow its way out of the massive debt we’ve taken on. I know … hard to believe. But it’s true. The power of compounding is truly inexorable, and it’s amazing what a steady 3.5% growth rate on a huge economic base can do to make manageable even trillions of dollars in debt. The rest of the developed world? Impossible to grow their way out of debt. They’re finished. Or rather, to use the lingo of my distressed debt friends, Japan and Europe ex-Germany are now “work-out situations”. But if the U.S. could just get out of its own way … if we could stop arguing about who gets to use what bathroom and start arguing about how to increase productivity (i.e., how to make technology a tool for humans doing more stuff rather than a replacement for humans doing stuff at all) … then we could actually come out of this okay.I know, I know … I’m a dreamer. And for all the political fragmentation and polarization reasons that I write about ad nauseam, or at least here, here, here, and here, the politics of identity are unlikely to be replaced by the politics of growth anytime soon. Not in the West, anyway. But that’s why I want to pull my hair out when I watch the Jackson Hole theatre. Guys, you’re not helping!
I was dumbfounded by the stultifying, excruciating more-of-the-sameness that came out of Jackson Hole. Oh my god, are we really saying that the entire FOMC decision-making process comes down to whether there’s a good jobs report on Friday? Why don’t we just inspect the entrails of a goat? Are we really still arguing about one-raise-or-two when LIBOR is now pushing 90 basis points? Was there any mention — any mention at all — of LIBOR during the entire Jackson Hole meeting? Do these people, and it’s not just the central bankers themselves but all the courtiers — the journalists, the academics, the hangers-on — do they even recognize that a world exists outside of their imaginations and theories? Answer: NO.
Yep, at first I was disappointed in them. But on reflection I became more and more disappointed in us.
See, the problem isn’t with the Fed. They’re going to do what solipsistic, magical thinking priest-kings have done for ten thousand years … more of THAT. More solipsism. More magical thinking. More 4 year old egomaniacal determination that their spell casting efforts are the ONLY thing that stand between us and utter ruin.
No, the bigger problem is with us. The bigger problem is that we cannot imagine a solution for our current economic and political problems that does not rely on greater and greater state-directed spell casting. Monetary policy spells not working? Well, golly, I guess our ONLY alternative is to try some fiscal policy spells. Really? That’s the best we can come up with? I understand that this is what the courtiers are going to say. But I expect more from the rest of us. I expect more from myself.Look, I get it. To riff on Woody Allen’s famous joke, we need the eggs. We need a stock market that goes up, not down. We need financial asset price inflation. We need the eggs so badly that we’re willing to support the magical thinking crew and smile at their courtiers even though we think they’re totally out of touch with reality. We’ve become so used to getting our eggs delivered on time and without fail that our first, second, and third responses are to ask for more magical thinking from the incumbent priest-kings, not less.
This is a dangerous, myopic game. Because we will get what we ask for. We will get more magical thinking. Only it won’t come just from the status quo magicians. It will also come from the alt-priests, some of whom will represent the absolute worst impulses of humanity. There are really bad ideas lurking on the wings today — there always are — but these really bad ideas about how human society should be organized always resurface and grow more powerful at times like this. Because it’s the old magic, an old magic that the human animal is hard-wired to respond to.Maybe we’ll get lucky. Maybe the banana plants of global growth will turn green again, and we can have a grand celebration of the particular variant of the policy spell that was coincidentally cast at the same time. That could happen. As Otto von Bismarck, the Iron Chancellor of 19th century Europe supposedly said, “there is a special providence for children, fools, and the United States of America.” Any portfolio manager with long enough tenure knows what it’s like to be bailed out by the market, and it’s a beautiful thing. Now we just need that to happen on a much larger scale.
But we should do better than just trust to luck. I’m not saying that we have to deny our human nature and stop believing in the act of spell-casting itself. I’m not (that) delusional. What I’m saying is that the more we embrace and encourage state-directed magical thinking, whether it’s of the monetary or fiscal policy sort, what we are actually doing is opening the city gates to the old evil magic and the alt-priests of fascism and totalitarianism. We don’t need the eggs that badly. What I’m saying is that we need to think less about Scottish witchcraft, a la Macbeth and James Frazer and Stanley Fischer, and more about the Scottish Enlightenment, a la David Hume and Adam Smith and Alexander Hamilton. What I’m saying is that we need to focus on empiricism and on what works in the real world, not theory and what “works” as an equation. What I’m saying is that usually the better course of state-directed action is to do less, not more, and the better course of individually-directed action is to do more, not less. What I’m saying is that the old good magic of small-l liberalism and technological innovation in the service of man rather than the replacement of man is pretty darn powerful itself, and the stories still inspire. Let’s embrace and encourage THAT as we make our way through what is still a largely inexorable world.
It matters whether or not we call things by their proper names, because the words and the spells motivate human behavior like nothing else. It matters whether or not we sleepwalk our way through our own fin de siècle, because the really bad people and the really bad ideas that periodically wreck our world can’t be wished away. It matters whether or not we become courtiers ourselves, because the courtiers always fall the farthest. The problem with magical thinking run amok and its perpetuation of a fantasy world is that sooner or later the dream of the delusional king becomes a real world nightmare for real world people. It’s time to wake up.
- Ultra-Violent Venezuelan Gangs Ignore Maduro Crackdown: "Better To Fight Police, Than Each Other"
Amid threats of violence, opponents of Venezuelan President Nicolas Maduro flooded the streets of Caracas today (2 million strong) in a major test of their strength and the government's ability to tolerate growing dissent. However, for a nation that is forced to slaughter stallions for meat, line up for toilet paper, and dying from lack of simple medicines, Reuters reports that there is another destabilizing factor – ultra-violent street gangs are thriving.
As Fox News reports, the Thursday march called the "taking of Caracas" aimed to pressure electoral authorities to allow a recall referendum against Maduro this year.
The buildup to the protest has been tense with Maduro's government jailing several prominent activists, deploying security forces across the city and warning of bloodshed.
Maduro said Tuesday that his opponents hope violence during the march will pave the way for a coup such as the one that briefly toppled his late predecessor Hugo Chavez in 2002. He said authorities had arrested people possessing military fatigues and C4 explosives, and who had plans to fire upon the crowds dressed as national guard members. He didn't say who he believed was behind the alleged coup plan.
"If they're coming with coups, ambushes and political violence, the revolutionary will provide an uncommon and overwhelming response," Maduro told supporters.
Rather than dampening Venezuelans' enthusiasm, the "war-like" rhetoric appears to be energizing the opposition, said Dimitris Pantoulas, a political analyst from Caracas.
Quite a crowd…Maduro claims *VENEZUELA OPPOSITION MARCH HAD 25K-30K PROTESTERS, MADURO SAYS… looks like a lot more than that!...
Impresionante marcha! Cuando a un pueblo le han quitado todo, lo único que le queda es su valor! Arriba #Venezuela pic.twitter.com/O61xQnACMA
— Cynthia Viteri (@CynthiaViteri6) September 1, 2016
Señores @webnotitarde por qué no ponen unas foticos del paisaje de Caracas hoy como éstas por ejemplo?? pic.twitter.com/5giNwzWNEO
— LAURENTZI ODRIOZOLA (@LAURENTZI) September 1, 2016
Maduro had expelled may foreign journalists hoping that would minimize coverage but 2 million people turned out in Caracas today – we don't think his plan is working.
But as AP notes, the government plans a counter protest on Thursday, but Pantoulas said authorities will have a tougher time rallying supporters among the poor amid 700 percent inflation blamed for growing hunger and a collapse in wages.
"I don't know that the poor will join opposition march, but they're not going to partake in the counter-protest," said Pantoulas. "The fact that the poor barrios won't be supporting Chavismo is enough to damage the government."
Also invigorating the opposition is a government crackdown.
Authorities over the weekend moved a prominent opposition leader, former San Cristobal Mayor Daniel Ceballos, from house arrest back to prison while he awaits trial on civil rebellion charges stemming from the 2014 protests. Authorities said he was plotting to flee and carry out violence during the protests.
Two other activists, Yon Goicoechea and Carlos Melo, were also detained this week, with a top socialist leader accusing Goicoechea of carrying explosives.
There have been more subtle threats as well. Government workers say they've suffered retaliation for signing petitions seeking Maduro's removal and the opposition-leaning newspaper El Nacional said thugs threw excrement and Molotov cocktails at its building Tuesday.
The U.S. State Department accused Maduro of trying to bully Venezuelans from taking part in the march.
But as police unleash tear gas to quell the protests…
Maduro faces more problems than just the average 'Juan' Venezuelan, as Reuters reports, Venezuela's socialist economy is suffering triple-digit inflation, severe shortages and a third year of recession, but ultra-violent street gangs have found strength and profit in the chaos.
They are teaming up with former rivals and buying heavier weapons to control ever-larger territory in the capital and beyond, the criminals, the government and criminologists say.
"The majority of the other slums are our friends. It's not only us anymore, now we do business with each other," said the leader, sat at a desk with his face hidden by a black ski mask. He would only give his name as Anderson.
He said rampant inflation is forcing the gang to be even more active as it seeks to cover sky-rocketing costs for weapons, drugs and even food.
"We used to do one job a month. Right now we are doing them every week," Anderson said, before a phone pinged with news of a drugs delivery. Venezuela's economy suffered 181 percent inflation and shrank nearly 6 percent last year, and is expected to perform worse in 2016. Basic products are scarce and food riots regular.
However, unlike a growing array of other armed groups in Venezuela – which include pro-government gangs and some small rural guerrilla and right-wing paramilitary forces – the street gangs are largely apolitical.
But as their reach grows, they are another destabilizing factor for President Nicolas Maduro, who is already struggling to govern a nation that is running short of food and medicines despite vast oil reserves and has one of the world's highest murder rates.
He has responded with aggressive raids by soldiers and police, a policy supported by many people sick of criminals but which rights groups say leads to executions and arbitrary arrests. Some criminologists warn the raids encourage gangs to seek out ever heavier weaponry in defense.
While some gangs are teaming up, there are still turf battles and internal disputes, and Venezuela is seeing more of the spectacular violence associated with Mexico's more powerful drug cartels. Police showed Reuters images of bodies left mutilated, hanging from bridges, or beheaded.
Maduro says crime is part of a conspiracy by the opposition and the United States. His opponents blame his policies and armed pro-government "collectives," which have multiplied in the past 5 years.
Maduro has responded with tough raids that send soldiers into poor neighborhoods in so-called People's Liberation Operations, or OLPs, emulating the iron-fisted strategy used to fight gangs in Central America and Brazil.
"It is our turn for combat," Maduro said at the event, where he gave some police a 50 percent wage hike in a bid to counter the dwindling value of their salaries.
Venezuela's leading human rights group Provea said OLPs contributed to 270 extrajudicial killings at the hands of security forces in 2015, the highest number since 1992.
The operations also encourage gang leaders to unite and seek more powerful weapons, said Keymer Avila, part of a group of Venezuelan and foreign academics researching crime in the country.
At his safe house, one gang leader confirmed that.
"It's better to work together than be enemies. It's better to make war with the police than with each other."
But apart from that – socialist utopia!!
- "Life-Threatening" Hurricane Hermine To Hit Florida, Head For Tri-State
For the first time in over a decade a hurricane is expected to make landfall in Florida. Winds from strengthening Hurricane Hermine lashed at Florida's northern Gulf Coast, forcing residents to evacuate some coastal areas and stock up on provisions ahead of what the state's governor warned would be a lethal storm. Forecasters are also warning that Hermine poses a Labor Day weekend threat to states along the northern Atlantic Coast that are home to tens of millions of people.
As Reuters reports, Hermine became the fourth hurricane of the 2016 season around midafternoon when its sustained winds reached 75 mph (120 kph). Located about 85 miles (135 km) south of Apalachicola, Florida at 5 p.m., it was expected to make landfall early on Friday.
h/t @Mark_Baden
Hermine could dump as much as 20 inches (51 cm) of rain in some parts of the state. Ocean storm surge could swell as high as 12 feet (3.6 meters). Isolated tornadoes were forecast.
The governors of Georgia and North Carolina on Thursday declared emergencies in affected regions. In South Carolina, the low-lying coastal city of Charleston was handing out sandbags.
Florida Governor Rick Scott declared a state of emergency in 51 of Florida's 67 counties, and at least 20 counties closed schools. Mandatory evacuations were ordered in parts of five counties in northwestern Florida and voluntary evacuations were in place in at least three more counties.
"This is life threatening," Scott told reporters on Thursday afternoon. "You can rebuild a home. You can rebuild property. You cannot rebuild a life."
In coastal Franklin County, people on barrier islands and low-lying areas on the shore were being evacuated.
"Those on higher ground are stocking up and hunkering down," said Pamela Brownlee, the county's director of emergency management.
"If we get hit with a real storm head on, all the provisions you can make aren't going to matter out here," he said, ready to use a chainsaw to cut beams on covered slips if rising water pushed boats dangerously close to the roof. "It'd be pretty catastrophic."
On its current path, the storm also could dump as much as 10 inches (25 cm) of rain on coastal areas of Georgia, which was under a tropical storm watch, and the Carolinas. Forecasters warned of "life-threatening" floods and flash floods there.
Still, many people in Florida, whose population has swelled since the last hurricane struck, saw Hermine less as a threat than entertainment.
While the impact of Wilma in 2005 seems long-forgotten by many in Florida, the devastation of Sandy on the Tri-State area is fresh in many people's minds and residents in New York, New Jersey and Connecticut — particularly those who live along the coastline — are taking precautions against Hermine. As ABC7NY reports, the calm before the storm is the best time to prepare for the worst, officials say, and crews in Hempstead's Point Lookout spent the day tying down boats to docks and building sand dunes along the beach to protect from high winds and high tides. It's just a small part of what's being done in preparation for Hermine.
"We've got chainsaws being oiled and made sure they're operational, should we have major trees coming down to block streets," Hempstead Town Supervisor Anthony Santino said. "We have again vehicles being fueled up. We have all of the boats on various town marinas being secured. We are moving non-essential equipment to higher ground."
"We've met with the Red Cross, we've reviewed our sheltering plan," Nassau County Executive Ed Mangano said. "We drive the coastal evacuation routes to review whether there's any construction, whether there's any debris in the storm drains, so we can alert the public if there's any hazard that was unexpected when we advised residents to utilize the coastal evacuation routes."
…
Along the Jersey shore, some towns were beginning to discuss preparations for the days ahead, while others were taking a wait-and-see approach.
Officials in Long Branch held a meeting Thursday. "We're just on standby right now," emergency management coordinator and beach operations director Stanley Dziuba said. "We have our hardware vehicles prepared, ready to go. We have our shelters in place, and we're just going through our checklist, making sure everything is ready to go."
…
"Right now, we're not expecting anything really major," he said. "But things change. Every five, 10 minutes, it seems like we get different updates."
…
"We're expecting a lot of energy happening," assistant beach manager Susana Markson said. "I know they're talking about the cone of uncertainty coming. We're not rally sure what edge of the storm we're going to get, or anything. We're prepared for any possibility."
Seaside Heights emergency management officials are still discussing whether or not they'll erect temporary sand dunes, saying decisions like that will likely be made further into the weekend.
In New York state, Gov. Andrew Cuomo said he has directed the State Office of Emergency Management to closely monitor the storm’s path and for state agencies to be prepared.
“If the storm continues far enough up the coast, there is a possibility downstate New York may experience high rip currents, heavy rain and strong winds this Labor Day weekend,” Cuomo said. “I urge all New Yorkers, especially those in the downstate region, to be prepared, check local weather reports, and use NY Alert to stay updated on the storm’s progress throughout the weekend.”
Follow Hermine in real-time… (click image below)
- The Transformation Of Wall Street In Just Two Photos: The UBS Trading Floor In 2008 And 2016
Back in its heyday, the trading floor in UBS’ Stamford office, once the largest in the world and big enough to hold 23 basketball courts, was a symbol of everything that went right on Wall Street. Packed with traders, it was a non-stop cacophony of screaming, constant motion and furious energy – to an outsider sheer chaos, which somehow ended up generating millions in profits for the bank every day. Some time around 2008, just before the financial crisis hit, it looked like this.
Fast forward 8 years later, when all that’s left of the UBS trading floor, and the legacy of that version of Wall Street, is this.
h/t @anilvohra69
- Albert Edwards Sees Shades Of 2007 In The Biggest Risk Facing The US Consumer
One month ago, when the first Q2 GDP estimate was released, we reported that if one strips away the consumer part of the economy, the US was already in a recession.
Overnight, In his latest letter SocGen’s Albert Edwards picks up on this topic, but first dispenses with the usual warning, saying that “the US economy is on crutches, and they are about to be kicked away” adding that “US economic growth is weak yet the labour market is tight. This juxtaposition is keeping the Fed in a quandary on whether to raise interest rates. As it stands it probably will, or will not, depending on which way the wind (data) is blowing that day!”
After the requisite “flip-flop Fed watching”, Albert then proceeds to agree with what we said recently, namely that “the only thing keeping the US out of recession is the US consumer (see chart below). It is difficult to say consumption is driving the economy forward – rather it is like a woodwormridden crutch creaking under the strain of holding up a deadweight economy. This recovery ? the fourth longest in history – is surely nearing its end.”
While so far the consumer remains resilient, and in fact in the second quarter, US personal spending unexpectedly soared to near cycle highs just as the rest of the economy dipped in a recession…
… this pace of consumption, of which Obamacare has been a significant recipient, will hardly sustain itself. According to Edwards, his “hypothesis that a US profits recession will lead to a collapse in business investment and take the economy into recession seems to be playing out. If consumption stalls then we really are in trouble, for the next devastating phase of the secular valuation bear market in equities will kick in ? much to the shock of both investors and the Fed.”
But before we drill down into the consumer part, first a quick look into why the SocGen strategist so confident that the non-consumer part of the economy is about to tap out. For that, he present the following historical parallel:
The year 1986 has been the only case where a business investment recession did not cause an outright US GDP recession. Why? Because the economy had recently emerged from 1982 recession and it was growing very strongly indeed when the hit to capital spending came. In addition, households were leveraging up aggressively, which boosted consumer spending. Neither of these things is the case now. Indeed the current consumer/GDP conjuncture has echoes of Q1 2007 (circled in the chart below), when robust consumption only temporarily offset extreme weakness in the data elsewhere. But within six months, by November 2007, the NBER recorded that the economy had fallen into outright recession.
So going back to the consumer, what does Edwards believes will catalyze the next move in spending lower? Well, besides today’s abysmal auto sales numbers
(which Edwards did not have in front of him when he wrote his note), he brings up another point we raised several months, namely that “The Fed Has A Problem: Inflation May Hit 3.5% By December Due To Gas Price “Base Effect“.” Indeed, now that we have anniversaried the low point in 2015’s energy prices, it’s all uphill from here for CPI prints. This is how Edwards puts it:One key and imminent risk for the consumer is a rapid pick-up in headline CPI inflation as the weak oil price of H2 last year starts to drop out of the yoy calculations. Headline CPI inflation is set to rise rapidly from the 1% where it has hovered for the past six months and to converge with core CPI, standing at 2¼%. That will sap some 1¼% from real personal disposable income growth, which will decelerate rapidly, removing the key prop for recent moderate robust consumption growth. This is the economy?s crutch being kicked away.
His conclusion:
In this likely outturn the increasingly tight labour market might mean the household sector can respond to the squeeze in real income growth by pushing up wages, which have been accelerating at a moderate but consistent pace over the last couple of years. An acceleration in wages might help offset the impact of slowing employment growth, as the pain in the corporate sector ripples over into all categories of their spending – hence nominal household disposable income growth (the dotted line in the chart above), may not slow so sharply. But with the Fed confronted with a traditional end-of-cycle, tight labour market with accelerating headline CPI and wages, the pressure to hike rates aggressively will be fierce. Perhaps the next recession will be of the normal, ?made in Washington? variety after all.
To be sure, rising wages (something corporations have only granted to the lowest paid workers as shown earlier this week) may delay the day of reckoning, but it opens up a whole new can of worms, because as Fitch warned just today in a report titled “Sharp US Wage Shock Could Cause Global Tightening; Major Slowdown“, a domestic US wage cost shock could lead to substantial financial tightening, which would result in a significant slowdown in the world economy. In the report Fitch economists explore the consequences of a much faster-than-expected pick-up in US wage growth and the impact on economic growth, Fed policy and bond yields as well as international macroeconomic spillovers.
“Fitch’s baseline forecast is for US wage growth to pick up gradually, which would support household incomes and help bring inflation back to target as the Fed gradually normalises policy, but a very sharp increase in US wage inflation would be problematic,” said Brian Coulton, Chief Economist, Fitch. “A surge in US wage inflation would prompt the Fed to hike rates much more quickly than expected and threaten the lower-for-longer market consensus on interest rates that underpins current very low bond yields.”
As Fitch concludes:
“The benefits of higher wages on US consumer spending would be quite quickly offset by up-front rate hikes from the Fed. Fitch’s simulations suggest the Fed would react by raising interest rates by an additional 150bps (relative to baseline) over the course of six months. In combination with the impact of higher wage costs and bond yields, this would see growth 1.4pps lower than baseline in the US in 2017, at 0.6%. About half the impact on US growth stems from the Fed’s reaction and higher wage costs and half from higher bond yields.”
Or, in other words, a recession is coming if wages remain low, but should wages rise too fast, the recession will come even faster. Pick your poison.
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